Lesotho
1 Policy, Plans and Priorities
Plans and Strategy
Under Lesotho's Vision 2020 produced in 2002 and Poverty Reduction Strategy (2004), a key aim is to attract more Foreign Direct Investment (FDI) and promote domestic investment. A number of measures were envisaged: further reducing administrative impediments for investors, providing water supply and other basic infrastructure, improving labour productivity and stability, and identifying industries, other than textiles and clothing, to add value to local products and diversify the economy (e.g. agri-business, mining, and tourism). An Interim National Development Plan 2009/10 – 2010/11 has been issued to bridge the time gap between the end date of the Poverty Reduction Strategy and a National Development Plan that is to commence in 2011/12.
Lesotho Investment Climate Assessment
World Bank (2007) “Key reforms that would reduce the high burden of regulation in Lesotho include:
(i) Reduce the cost and time it takes to start a business by streamline licensing and registration processes,
(ii) Simplify the procedures to issue foreign workers with visas, work permits and residency permits and improve immigration services at Lesotho’s points of entry,
(iii) Improve customs procedures and streamline the customs clearance process for import transactions,
(iv) Lay foundations for a business-friendly legal and regulatory environment by developing and implementing a modern legal framework,
(v) In addition, there would be strong benefits to harmonizing legislation governing private sector development with that in South Africa. Strengthening the institutional capacity of public and private institutions supporting private sector development and improving and institutionalizing the public-private consultative mechanism would also be useful.”
Pace of Reform
DFID / Government of Lesotho (2008) “Despite the commitment to reform, Lesotho is falling behind its competitors in terms of the pace of reform. International and regional competitors are reforming faster, with the result that Lesotho is losing trade, investment and job opportunities to competitor countries. Moreover, as reform to the business environment is being delivered predominantly through donor programmes - the implication is that these donor funds are not being utilised to the maximum benefit for Lesotho.”
WTO Trade Policy Review: Lesotho
WTO (2009) “Over the last few years, Lesotho has taken steps to improve its investment climate, notably through the establishment of the trade and investment facilitation centre to serve as a one-stop-shop to speed up the licensing process. Nonetheless, in general, FDI in Lesotho has been inhibited by structural constraints, such as high transport costs; underdeveloped legal, judicial, and regulatory framework; labour market rigidities; limited access to bank financing; and prohibition on land ownership by foreigners.”
The One Stop Shop is an initiative intended to consolidate services that include, issuing of permits, trade licenses, residence permits, import permits and export visas into one premise to advance business services.
Lesotho Trade and Investment Vision
Lesotho's trade vision is to achieve a pre-eminent position in the sub-region, and in Africa, as an investment destination of choice, and be competitive in the multilateral trading system while maintaining the highest consumer protection standards. Lesotho hopes to achieve this through development of policies conducive to promotion of entrepreneurial skills and transfer of appropriate technology, and through smart partnership of the public and private sectors. Lesotho seeks "to create and maintain a more equitable and enabling environment for industrial, agri-business and commercial development".
Industrialisation Master Plan
The Ministry of Trade, Industry, Commerce and Marketing (MTICM) Industrialisation Master Plan 2007-10 (IMP) (see Sources: Government of Lesotho MTCIM 2007) was agreed between Government and the World Bank under the Private Sector Competitiveness and Economic Diversification Project. It aims to further promote the manufacturing sector, create more employment, and help reduce poverty. The private sector is expected to be the main engine of growth, with the Government facilitating the process by creating an enabling environment. The IMP lists 29 specific measures to address obstacles including:
· Development of a centralised structure for formulating and monitoring industrialisation policy, so as to address the lack of administrative coherence and failures in coordination,
· Improvements in the investment-incentive regime,
· Diversification of manufacturing activities,
· Securing access to export markets through improvements in trade negotiating capacity,
· Infrastructure development,
· Improving the business environment,
· Facilitating access to credit from commercial banks,
· Promoting labour productivity, and
· Developing Small, Medium and Micro Enterprises (SMMEs).
Tourism
In 2007 the Ministry of Tourism, Environment and Culture (MTEC) issued the Tourism Strategy 2020. The key challenges identified are: market demand, including the need to distinguish Lesotho from competitor destinations, product development and diversification, including the need to diversify the product base to increase the length of stay and retain a higher spend per visitor; an enabling environment for rapid tourism growth, including improved visitor access to and within Lesotho, and management, including establishing appropriate policy, planning, and legal frameworks. Some of the main goals are: improving the packaging and presentation of existing attractions; supporting and promoting tourism investment and facilitating SMMEs and community based tourism; and ensuring that the infrastructure is adequate and is further developed. (Micro enterprise employs less than 3 people, small enterprise employs 3 to 9 people and medium enterprise employs 10 to 49 people).
2 Investment Promotion
2.1 Institutions
MTICM seeks to:
The Ministry of Trade and Industry, Cooperatives and Marketing
· attract foreign investment in order to broaden the country's industrial base and improve employment opportunities for the local population,
· identify and assist local entrepreneurs and the farming community to utilise export opportunities in order to improve the country's foreign exchange earnings, and create growth in the industrial, commercial, and agriculture sectors,
· facilitate the creation of a conducive and appropriately regulated environment for commercial and marketing activities in order to improve the performance, and to support the growth, of local entrepreneurs and farmers,
· foster Lesotho's effective participation in international and regional trade organisations and maximizing its benefits from treaties to which it is a signatory, and increasing market shares, profit margins, and on-farm income.
· The MTICM undertakes to:
· formulate, and monitor the implementation of appropriate commercial, marketing, and industrial development policies, and enforce supporting legislation,
· establish institutional frameworks that promote foreign direct investment and domestic participation in terms of the country's commercial, marketing, and industrial activities, and
· foster the global competitiveness of Lesotho's economy.
Trade Promotion Unit (TPU)
TPU in MTICM is responsible for supporting exporters to market products outside Lesotho. TPU was established in 1978 to promote, coordinate and develop exports. TPU offers technical assistance and advice to exporters, promotes and publicises exports, undertakes research and studies on specific exportable products, and assists foreign buyers. TPU facilitates participation of local manufacturers and exporters at regional and international trade fairs and exhibitions. The Government provides marketing assistance, but does not provide direct financial support for costs of trade fair participation.
One Stop Shop
The One Stop Shop set up in 2007 at MTICM gives guidance and support to complete the steps of obtaining a Manufacturing or Trading License, registering as an importer, import and export permits and obtaining work,andresidency permits and registration of companies started in 2011 after the introduction of companies Act, 2010.
Lesotho National Development Corporation
LNDC is formed under the LNDC Act No 20 of 1967. While the Act stated that the mandate of the Corporation is to initiate, promote and facilitate the development of manufacturing and processing industries, mining and commerce in a manner calculated to raise the level of income and employment in Lesotho, it has focussed on industrial development. The LNDC core functions include finance, foreign investment promotion, domestic investment promotion, monitoring and appraisal, legal services, property management, and in these matters, it works as a one-stop shop for investors. LNDC administers four serviced industrial estates, in Maseru, Thetsane, Maputsoe, Mohale’s Hoek and Ha Nyenye, and a factory building at Mafeteng. So far, Tikoe Industrial Estate is only partly serviced. LNDC seeks to promote Lesotho as a location for investment and the establishment of commercially viable medium to large-scale enterprises by foreign and domestic investors.
Tourism
The Ministry of Tourism, Environment and Culture (MTEC) is responsible for tourism policy. The Lesotho Tourism Development Corporation (LTDC) established under the Tourism Act No. 4 of 2002, has wide powers, including the designation of tourism development areas and provision of financial assistance in the form of grants, loans or tax exemptions for tourist development. The LTDC is 51% state-owned and its Board has representatives of Government, local associations, and the private sector. The Lesotho Council for Tourism (LCT) is the private sector representative body in tourism.
2.2 Investment and Export Incentives
LNDC Assistance
LNDC as well as the One Stop Shop at MTICM can assist with getting a business started
· Reserving a company name
· Registering a company
· Getting a manufacturing license
· Registering for tax
· Registration of a workplace
· Registering for municipal rates
· Immigration Issues - Visitors visas, Residence permits, 6 month border concessions
· Connecting to Utilities - Electricity, Water, Telecommunications
· Labour issues - Work permits
LNDC may provide loans to finance projects or take equity investments in projects.
Export Finance and Insurance Scheme
The Central Bank supports an exporter by guaranteeing 50% of credit extended by the exporter's bank. The credit facility is only for working capital requirements. The key objective of the scheme is to enhance economic growth by assisting local exporters gain competitive advantage in the international markets, with the aim of achieving poverty reduction and job creation. Exporters must meet the following criteria:
· The applicant must have been in the export business for at least one year,
· The applicant's business must export at least 50% of its annual production,
· All of the exporter's merchandise/service must be manufactured in Lesotho with a Value Added component of least 35%,
· The applicant must have a valid export order,
· A large scale exporter must have a linkage with Basotho businesses,
· The applicant must keep a proper set of business records,
The minimum amount that can be borrowed under the scheme is M50,000. (US$6700) and the maximum for a small business is M1,000,000 (US$134,000) while a large business can borrow up to M5,000,000 (US$670,000). A small business has less than 50 employees or annual turnover less than M5,000,000 (US$670,000).
The term of the guarantee cover is one year from the date of issue. The scheme is administered by commercial banks that charge interest up to the maximum of the prevailing prime rate and there is an application fee. A financed exporter is charged a quarterly guarantee fee at the rate of 0.75% on the highest amount outstanding in each quarter. The exporter must take insurance cover against commercial and political risk. The uninsured component of the lending is secured against the exporter’s assets or irrevocable letters of credit, bills insured by the bank of the buyer, advance payments or any other form of security that may be agreed upon between the bank and the exporter.
2.3 EPZs, Freeports and other Special Economic Zones
There are no export processing zones in Lesotho. Serviced industrial sites and factory shells are available for rent at competitive rates.
2.4 Tax Incentives
The Government Tax Policy states that “tax incentives, by their nature, on several occasions, come in conflict with the principles of good taxation and should therefore be kept to the minimum possible as this over-complicates the tax system, making it more expensive to monitor the beneficiaries of such incentives and therefore increase the possibilities for tax evasion”.
The Lesotho tax regime contains the following incentives:
· 0% tax on income generated from exporting manufactured goods outside of SACU,
· A maximum manufacturing tax rate of 10% on profits derived from sales within SACU,
· No withholding tax on dividends distributed by manufacturing firms to local or foreign shareholders,
· No advanced corporation taxes are paid by companies on the distribution of manufacturing profits,
· Mining companies are exempted from taxes on capital items during mine evaluation and construction, and there are exemptions from withholding taxes on dividends and interest payments,
· Training costs are allowable at 125% for tax purposes,
· Payments made in respect of external management skills and royalties related to manufacturing operations are subject to withholding tax of 15%,
· Easy repatriation of manufacturing profits,
· VAT rate of 14%,
· Lesotho Revenue Authority has flexible VAT payment systems for tax compliant enterprises to ease cash flow constraints.
2.5 International Trade & Export Promotion
Certain goods imported into Lesotho from outside of SACU require import permits. Under Lesotho's Export and Import Control Act No. 16 of 1984 as amended, all importers are required to register with MTICM in order to be eligible for import permits. Clearing agents must register with the Lesotho Revenue Authority (LRA) and submit a bond of between M 25,000 and M 50,000 on the basis of the Customs and Excise Act 1982. The LRA was established in 2001, as an autonomous body, to strengthen tax administration and increase revenue collection and it commenced operations in January 2003. The LRA is responsible for the assessment, collection, and remittance of all taxes.
All goods brought into Lesotho are subject to customs control. The declaration form used is the Single Administrative Document (SAD), introduced in 2006. The SAD applies to all imports and exports regardless of origin or destination. Goods imported into Lesotho from within the SACU, are cleared (for VAT collection purposes) at the land borders with South Africa, the international airport or as parcel post. These goods are not subject to customs duties. In general, goods imported from outside the SACU pass through South Africa. Customs clearance on SACU imports takes only a few minutes as they are processed instantly on submission of declaration documents. Customs clearance for imports from outside SACU takes about two days but is depending on the availability of relevant documents and other requirements of the law.
3 Access and Admission of Foreign Investors